Performing the function of Director on a Board of Directors by a Natural person
Issue
Article 3 of the Cabinet Decision No. 52 of 2017 on the Executive Regulation of the Federal Decree Law No. 8 of 2017 on Value Added Tax (“Executive Regulation”) has been amended by Cabinet decision No. 99 of 2022, which introduced a new provision.
Article 3(2) of the amended Executive Regulation states that the functions of a member of a Board of Directors (hereafter referred to as “Director”), performed by a natural person, appointed as a Director, for any Government entity or private sector establishment, shall not be considered as a supply of services.
The new provision takes effect as from 1 January 2023. This Public Clarification provides guidance on how to apply the new provision and determine the resulting VAT obligations prior and post the date of 1 January 2023 on concerned natural persons.
Summary
With effect from 1 January 2023, the performance of a Director’s function, by a natural person and for a remuneration (monetary or in kind), on a Board of Directors of any government or private sector entity, shall not be considered to be a supply of services for VAT purposes.
Prior to 1 January 2023, the general rule was that services provided by Directors, whether the function was performed by a natural person or a legal person, were considered to be services for VAT purposes.
These supplies of services were taxable where:
- the Director performed the services on a regular, ongoing, and independent basis, and
- the total value of taxable supplies and imports made by the Director, not limited to but also including the Director services, exceeded the mandatory registration threshold.
VATP037 – Director services – for publishing – 13 05 2024 Download the complete